Office Space FAQ
1. How can I know I am getting a good deal?
2. I am so busy. How can I avoid the hassle of finding the right office space in Houston?
3. What is meant by useable square footage vs. rentable square footage?
4. What is an operating expense pass through or escalation?
5. What is a tenant representation agent?
6. Am I too small to be represented by a tenant representative?
7. How much will it cost me to have a professional tenant representative handle my lease?
8. Can't I just find some space and get my lawyer to handle the lease?
10. Is there anything I can do about lease obligation if I were to become disabled or die?
11. What can I do if I think the landlord is treating me unfairly?
12. Moving is such a hassle! Is there someone that can help me with this process?
15. What are "above building standard" services?
Further Reading
1. How can I know I am getting a good deal?
Your tenant representation agent has access to vast amounts of market data to share with you. This information will insure that your deal will match up favorably with others made in the market at the time. However, price is not cost, and there are numerous issues that must be negotiated by your agent that will ultimately affect your cost of occupancy.
In addition to actual dollar amount, liability, indemnity, regulatory, casualty and many other issues should be addressed in the negotiation.
2. I am so busy. How can I avoid the hassle of finding the right office space in Houston?
Simple. Utilize the services of a tenant representative agent.
Your tenant representative agent should handle or oversee all aspects of the transaction. A few benefits are:
- Your agent will review your needs in comparison to market alternatives in order to narrow your focus to include only real estate opportunities that best meet your needs.
- Your agent will negotiate the business points of the lease transaction and serve as liaison between you and your prospective landlord.
- Your agent will add convenience to the transition, coordinating the many consultants that surround your real estate transaction (i.e. attorneys, space planners, architects, designers, contractors, move coordinators, etc.)
3. What is meant by useable square footage vs. rentable square footage?
Useable and rentable square footage are terms used to describe the amount of square footage a tenant lease. The useable square footage is the area within the walls of the tenant's space. The rentable square footage is the useable area increased by an "add on factor," sometimes called the Tenant's Proportionate Share. This is calculated in order to divide up the common areas of the building among all tenants based on the percent of the building they occupy.
These common areas include areas such as the 1st floor lobby, elevator lobbies, mechanical rooms and restrooms.
4. What is an operating expense pass through or escalation?
Expense pass through or escalations are building operating costs the tenant must pay in addition to monthly rent because they exceed a "base year" operating expense factor.
Typically, when a rental rate is determined, it will include a component that represents the operating expenses during that base year. In subsequent years following the base year, if operating expenses exceed the base year operating expense factor used in determining the rent, the tenant pays a proportionate share of such increase.
These expenses are typically invoiced monthly, based on an estimate of operating expenses for the year, and reconciled during the following year after the actual operating expenses for the year in question are known.
This practice was developed in an effort to protect the landlord from inflation, since the landlord was fixing a rental rate over a long period of time and could not guarantee that operating expenses would not go up due to inflation or other operating issues.
A well-negotiated lease will provide the tenant with safeguards against abuse by the landlord. These safeguards might include a list of expenses that cannot be included in operating expenses, and also might subject the landlord to a test that operating expenses be in compliance with industry and market practices.
5. What is a tenant representation agent?
A tenant representation agent is a licensed real estate agent that specializes in representing commercial tenant's interest in a real estate transaction. This representation can encompass:
- Acquisition or disposition of space
- Consultation regarding the selection of other professionals needed, such as lawyers, contractors and move coordinators
- Differences that arise in tenant dealings with the landlord at any time over the term of the lease
6. Am I too small to be represented by a tenant representative?
NO. You should be aware that tenant representation agent's compensation is typically a commission paid by the landlord. This commission is based on a percentage of the total rent that the landlord will receive, based on the size of the space, the rental rate and the term of the lease.
Because of this, smaller tenants produce smaller compensation for the agent. Therefore, some agents prefer not to work with smaller tenants, but many agents will. It is important that you have a clear understanding with your agent that they have the time and desire to properly represent your interests.
Having an agent working on your behalf ensures you are protected throughout negotiations. Your agent's negotiations will save you an amount of money that is much greater than.
7. How much will it cost me to have a professional tenant representative handle my lease?
Many agents will tell you that it costs you nothing since the landlord pays the real estate commissions in the typical lease transaction and to a great extent that is the case.
However, we have been taught that nothing is free. While that statement is generally true, in most instances the representation is actually of no cost to the tenant, because many landlords have "built in" the fees that are to be paid when they quote a rental rate.
Additionally, in many instances, if an agent does not represent the tenant, the landlord's agent simply receives a higher fee.
Having an agent working on your behalf ensures you are protected throughout negotiations. Your agent's negotiations will save you an amount of money that is much greater than their fee.
8. Can't I just find some space and get my lawyer to handle the lease?
The leasing process involves many steps and legal documentation is only a fraction of the process. Tenant representation and a law firm that is versed in office leases are partners on the same team that will help you.
The entire process involves many issues not within a lawyer expertise, such as market analysis, economic analysis, negotiation of business points, planning, construction and move considerations to name a few.
9. How do I know that the owner will maintain building conditions as they were when I originally leased it?
Since many office buildings change ownership every 3 to 5 years, this should be of great concern. Usually the lease document is your only protection, so great care should be used in insuring there is language that protects you.
10. Is there anything I can do about lease obligation if I were to become disabled or die?
In some instances, the landlord will cancel the lease. If not, term life insurance is another way to protect yourself and/or your estate from such exposure. Subleasing the space to another user is another avenue that can be helpful in reducing or eliminating the lease obligation.
11. What can I do if I think the landlord is treating me unfairly?
The lease document is where your protective language lies. You should make every effort to ensure there is language that requires the landlord to maintain the building to certain standards, such as those standards that are common to similar buildings in the market. Also, you should include remedies in your agreement if such is not the case.
12. Moving is such a hassle! Is there someone that can help me with this process?
Yes! There are firms that specialize in all aspects of a move. Your tenant representative should be able to give you the name of several firms that have performed well for them in the past.
13. How do I know the money I get for improving the space will be enough to do what I want? What can I do if it isn't enough?
Space planners, architects and contractors should be involved early in the negotiation process in order to insure that costs are known.
While a good tenant representative can usually get all of the costs paid by the landlord, any overage that might arise can usually be amortized over the term of the lease by increasing the negotiated rental rate.
14. My current lease expires on a certain date. What happens if my new space is not ready by that time?
This is a very dangerous situation. Typically, your current landlord will charge you a "holdover" rent equal to 150% to 200% of your current rate. However, in the worst case, the landlord has the right to evict you within give a relatively short due process.
Your tenant representative should address this issue very early in the process with your current landlord if it is anticipated that such a problem might arise.
15. What are "above building standard" services?
When rental rates are quoted, they include certain services during "normal" hours of operation.
Above building standard services are services that exceed the typical services or any services outside of the normal hours of operation of the building.
This is fair in that tenants that require extra services actually pay for them, rather than having them spread out and paid by the rest of the tenants in the building.
